Strategic Options Play: AXISBANK 28SEP Bull Call Spread

The stock markets are currently exhibiting a strong “trending” pattern, with the NIFTY index displaying consistent gains for six consecutive sessions. Notably, in recent days, Public Sector (PSU) Banks have outperformed the broader market, whereas the Banknifty Index has lagged behind. Private banks and the financial services sector have not fared as well compared to the primary NIFTY or the broader NIFTY500 Index.

While the NIFTY is approaching its all-time high, the Banknifty Index is still away by approximately 1000 points to its all-time high level. There is a notable probability that the Nifty Bank index will catch up or even outperform the NIFTY soon.

Examining the Banknifty’s constituent stocks, several private banks exhibit favorable technical setups, with AXISBANK standing out as a prime example. AXISBANK is on the brink of a significant breakout, which could occur if the stock surpasses the 995-level mark and manages to maintain that position.

For investors, there are different strategies to consider. Those trading in the Cash Segments or Futures might consider direct positions, while Options traders could explore a Bull Call Spread strategy in AXISBANK. This approach offers the advantage of limiting both potential profits and losses, thereby providing an attractive risk-reward ratio.

The proposed strategy involves buying AXISBANK 28SEP 1000 CE and simultaneously selling AXISBANK 28SSEP 1040 CE, resulting in a net premium payment of 10.20. The objective is to capitalize on an expected breakout, potentially driving the stock to test 1040 levels, with a target of 40 and maximum profits of 18,625. This approach offers a favorable risk-reward ratio of nearly 1:3, ensuring that even in the event of adverse outcomes, the trader’s maximum loss is limited to the Net Premium Paid, which is Rs. 6,375.

In summary, the markets are in a trending mode, with PSU Banks recently outperforming but the Banknifty Index trailing. As the NIFTY approaches its all-time high, there is potential for the Banknifty Index to catch up. AXISBANK, among other private banks, presents a compelling technical setup, making it an interesting option for investors. The Bull Call Spread strategy as detailed below in AXISBANK, favored by Options traders, balances risk and reward effectively.

Milan Vaishnav, CMT, MSTA
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